Range Resources was the early pioneer in the modern Marcellus shale play in the Appalachian Basin, and today it enjoys an enviable position. Of its 1.3 million acres in the basin, it considers a whopping 700,000 acres prospective for the Marcellus, said John Pinkerton, chairman and CEO of Fort Worth-based Range Resources Corp., speaking at Hart Energy’s Marcellus Midstream conference in Pittsburgh.

Range had deep roots in Appalachia, and its resources included an extensive database of existing well data and years of operating experience. Early on, one of its focus areas was the liquids-rich side of the play, centered on Washington County in southwestern Pennsylvania.

To develop this side of the emerging play, Range was interested in forging a relationship with a gas processor. “We really liked the wet part of the play because of the superior economics, but we had limited capital. We also had a pretty good view of what we were good at and not good at,” said Pinkerton. The firm had handled some midstream projects internally, and was well aware of the demands of that complex sector.

Another party interested in the wet-gas area of the Marcellus was MarkWest Energy. The Denver-based gas processor had been active in the Appalachian Basin for years, and had extensive local experience in processing and marketing of natural gas liquids.

“Being able to capture value from liquids is the sweet spot for us,” said Frank Semple, MarkWest chairman, president and CEO. The two executives participated in a Fireside Chat at the conference, which attracted some 1,400 attendees.

The companies announced a partnership in June 2008 in the Marcellus. “Even though it’s not a formal joint venture, it operates like one,” said Pinkerton. “Trust is crucial. We had to have confidence that our information would be kept confidential, and we trusted MarkWest.”

Range and MarkWest found they were compatible, and they quickly established a solid relationship. The two firms work in close coordination. “We are joined at the hip with the Range team,” said Semple. The partners hold frequent meetings, from weekly gatherings for technical staffs to quarterly discussions among senior management.

For MarkWest, a hurdle it faced early on in the Marcellus play was the amount of capital needed to move ahead. The processor’s strategy is to create fully integrated solutions for producers, and it advocates and practices long-term planning. Its blueprint for the Range area required $300- to $400 million, but in 2008 capital markets were not friendly. The company responded to the challenge by strengthening its balance sheet through financial engineering, the sale of some assets, and the addition of financial partners.

“We wanted to maintain our lead in the Marcellus, because we believed in the long-term development of this play,” said Semple. MarkWest found the funds to pursue its goal of building an industrial-strength system to process a significant amount of Marcellus gas.

Today, the Marcellus continues to expand at a rapid clip. Production across the entire play has reached 2.5 billion cubic feet (Bcf) per day, and conservative estimates call for volumes in the neighborhood of 8 Bcf a day by 2020.

Certainly, staying abreast of producers’ drilling programs is a daunting challenge for the midstream sector.

“I’m pleased with how quickly we have ramped up,” said Semple. “But it will take continued diligence, and it is critical that we try to anticipate challenges and problems. It’s an extraordinary play, but we are doing it very fast. Scale is an issue. We have to create value safely, and what we are doing is very complex.”

The extent of the play is both a blessing and challenge for Range as well. “The play is bigger than anyone thought,” said Pinkerton. Range has sold assets and marshaled its capital to concentrate on the Marcellus; from one person in 2007 it now employs 350 people in Pennsylvania. “Last month, we hired 28 people, all from the state of Pennsylvania,” he said.

Indeed, the quality of the wells and the size of the Marcellus fairway have greatly exceeded initial expectations. And now, early indications are that other shales and tight sands in the Appalachian Basin could also be productive if horizontal drilling and multi-stage fracture treatments are applied. Range has already drilled test wells in the Utica and Upper Devonian that are encouraging.

“We’re just in the initial innings,” said Semple.

Contact the author, Peggy Williams, at pwilliams@hartenergy.com.